Goldman Sachs: 50bp Hikes To Extend To November

Following the upside surprise to May CPI, Goldman added one 50bp hike to its Fed rate path outlook (to September) but in its full June meeting preview it adds yet another 50bp to November meeting. GS still sees 50bp raises in June and July.

• The FOMC will respond to the inflation data and rising long-term expectations with a “resolutely hawkish message” across the statement, projections, and Dot Plot.
• Why not 75bp? While possible, “the FOMC appears to prefer to tighten more aggressively by adding more 50bp hikes instead. This strategy has successfully tightened financial conditions quickly and forcefully so far, so we expect the Committee to stick with it for now.”
• SEP/Dot Plot: End-2022 dot at 2.875%; 2023 at 3.625%; 2024 at 3.375%.
• Statement: To revise forward guidance to say the FOMC “anticipates that raising the target range expeditiously will be appropriate until it sees clear and convincing evidence that inflation is moderating” – implying a high bar for reverting to 25bp hikes.
• Future action: 50bps in Sep and Nov (25bp previously), in addition to the 50bp hikes in June and July it has previously called for, 25bp pace in Dec and Jan, reaching a terminal rate of 3.25-3.50%.